"If your culture doesn't fit your strategy, it will create huge problems"

As we enter the Boston office of Kotter International at Harvard Square, on an overcast Sunday morning, we notice a comfortably ensconced lifelike penguin by the glass facade. An internal voice intones, this guy advises companies on change, so should there not be a dinosaur here? As our interview with changemeister John Kotter progresses, we notice that the penguin is a permanent fixture. You see it on Kotter International’s logo, on the cover of bestselling books on change management and even in the conference room where Kotter and his associates brainstorm. “Is that some kind of lucky mascot?” we ask Kotter. It seems that the tuxedoed flapper and his ilk made it to The New York Times bestseller list on the cover of Our Iceberg is Melting, a parable where the survival of their community is dependent on change. While Kotter has penned and lectured about change management innumerable times, in that particular book, the push and pulls in an organisation trying to deal with change came across in a very simple manner. Kotter believes the only way organisations can cope with relentless change is by operating through a dual network focused on sustenance and innovation respectively. He and his penguin friend would certainly be much happier if companies at large start preparing for change rather than doggedly resist it. 

Much of your work revolves around dealing with change. Given the proliferation of smartphones and tablets, information now travels at the speed of light. How big is technology a disruptor of traditional management? 

The most powerful force that is shaping the world right now is the increasing rate of change. Primarily, two factors drive this: global integration and relentless technological innovation. That, in turn, has huge implications for what is required for organisations of any sort, in any nation, to succeed. Also, I constantly see people handling cultural change poorly. Culture change tends to happen very slowly and if you don’t align your organisation to accelerate along a faster moving world, sooner rather than later you will have a culture problem. 

What is it that you call: the right culture?

Culture is nothing more than norms of behaviour that people don’t even pay attention to. Culture, to use an analogy, is like air. You can’t see it but you sure can feel it. Most people inside an organisation can’t accurately describe their own culture. We did a study some years ago when everybody was first talking about culture to try and see if it had any relationship to economic success. The original sample of 350 businesses was followed by a more intense study of about 25 or 30. We found that if your culture didn’t fit your strategy, it created huge problems, and if it did, it helped a great deal. The problem is, the world changes, your strategy changes, but your culture does not change very quickly. We found that the most successful firms had a culture that could adapt to changing circumstances and most importantly,  believed in, respected and wanted to help the three basic constituencies upon which businesses rest — people who get them money, i.e., investors; people whom they sell to, i.e., customers; and the people who do the work, i.e., employees. So if you have many eyes throughout the organisation paying attention to opportunities and problems from the three basic constituencies, you are more likely to spot changes there and have people providing leadership to make things happen. I have still seen no evidence to suggest that the fundamental idea is wrong.

Having said that, would you still say there is the need for a new leadership framework?

Yes, of course. Organisations that developed in the 20^th century are run on hierarchy and project management. The existing hierarchy is great if you were operating in a slow world; you could afford to make incremental changes over time. The problem is that as the world goes faster and faster, that doesn’t work as well. We have been trying for at least the past 20 years to come up with a definitive framework to deal with the new world. All kinds of stuff have been tried out. Some people said one hierarchy is not enough; you need two. They called it a matrix organisation. Believe it or not, 25 years ago, the best thinkers said that is where the world is going. However, even today, a sophisticated matrix is not the norm among the most successful organisations. 

Then, for decades now, people have been saying you have to empower more folks so they can notice and participate in what is going on. You have had endless empowerment programmes in organisations and the track record of that is terrible. We have also had endless discussions on agility. We have made some progress by taking levels out of hierarchies and by giving people at the bottom a little more elbow room. But the track record has not been great. How many organisations of the 500,000 out there of any size are really agile? Not many. 

We are eventually moving toward a dual operating system in which a network fuses into a hierarchy. So you get people from the very bottom whose ideas get into the information processing system and are used. In our experience, it creates strategic agility, it develops people’s leadership capacity and it empowers folks. Fundamentally, what it allows you to do in a rapidly changing world is to accelerate in a smart way to keep up with those changes while your competition cannot. This is a leap from what we have been doing for decades. Some organisations, almost all high tech, have been trying things like this or something like it. Many have been failing because they have got the concept but they haven’t figured out enough of the details. Right now, about 2% of organisations have figured out the details. But it works. We know because we have been helping organisations put this into place.  

Who are these 2% who are getting it right?

I first noticed it when Larry Bossidy, Edward Hood and Jack Welch took over GE. Jack is phenomenal. He was the best large company CEO in the last quarter of the 20^th century globally, no question. He had ideas. He talked about a world that changed in nanoseconds when nobody even could understand what the hell he was talking about. He started doing some things or allowing people to do things that were very different in terms of how they ran their businesses. Watching that situation I started to get some of these ideas. Another place that I started to get some of these ideas was the most successful airline in the world in the last quarter of the 20^th century, which was Southwest. They have got a lot of publicity but nobody really understands some of the things they did to get there. I am not sure even they understand it, except for the fact that they are different. They know that ‘we operate differently here’. 

But it is very much in the direction that I am now thinking and writing about and we are helping people do. The 2% that we haven’t worked with and those who have got it right tend to be mid-sized organisations with revenues of $500 million to $1 billion. They are the ones on the cutting edge and often because the guy in charge just has an intuitive feel that something very different is needed and starts creating it. He himself might find it hard to explain what exactly he is doing. But he starts doing it and it works and so it reinforces itself. You can see little pieces of this in some of the great success stories. But they have never really been understood or written up. There are little pieces of this in Apple. People are going to figure that out and write that story 30 years from now. Right now they are obsessed with Steve Jobs’ personality saying he was an odd ball, he was a genius and so on.

What is your assessment of the leadership style at Apple? Convention says that you need to empower or share information. Apple is said to be secretive and yet it has got almost everything right.   

Nobody gets everything right. Apple has just been successful enough. First of all, great success almost always requires you to take some risks. Taking risks also means you can fail. If you are good enough the failures get lost among the brilliance; you don’t even notice them. It is going to take some time to get out of the Steve Jobs halo, because it was more a system that made things happen. There was no question that he was at the centre of the universe. With him gone, the probability of it working in such an astonishing way is going to go down. But the problem for the board of directors is to make sure that the guy who is in charge is at least a 70% Steve and not a 10% Steve.  

Google is another story that is too early to evaluate. Right now, the only thing we know is that they have so much cash coming in and so much momentum that they could be making 10,000 mistakes a day and nobody would know about it. If you want to understand the Google story, somebody will write it up in another 35 years.

Why aren’t there more companies such as GE or Southwest Airlines? Why have other companies failed to replicate their success?

Everybody who is running an organisation grows up in it. Some might have better managerial processes, smarter hierarchies or better techniques for developing strategies. But they grow up in that system and that is all they know. The number of people who can think out of the box after 20, 30 or 40 years of living in that world is astonishingly small. That is what they know and that is what they default to, constantly. This is true of all of us. We grow up in a certain environment, learn what success means there and the probability that at the age of 50, you will do something very different even if the world is changing around you is minuscule.

Even if you know that something different is needed, with the slightest bit of pressure you default to what you know. It is usually a very unusual individual who breaks away from the norm and gets this started, such as a Jack Welch, a Steve Jobs or an Herb Kelleher, often because he or she has been operating differently all along. They were able to produce results, so people allowed them to get away with it. The solution is not to go out and find more of them. That isn’t going to happen. The solution is to understand what they have done and teach and help very normal skilled people to do it. 

Should we be resigned to the fact that organisations have a limited shelf life? The founder or disrupter’s passion carries the momentum for 10-20 years and then the momentum is lost. GE and Southwest are exceptions.

Any new start-up is a loose network of people, organised in a certain way where everybody is in the game. Their hearts are in it. Leadership from almost anybody is accepted. As they grow they have to start producing intelligent hierarchies with good managerial processes. Those eventually stomp out the original system. This is the life cycle you are talking about. They become so powerful that they can’t agilely adapt to a faster moving world and level off and start failing. Does it have to be that way? No. We are learning at least how to help companies in later stages create a new system that makes them more youthful. That takes them back to when they were still responsible. It is not about going back to an experimental 17-year-old but more like a 28-year-old who is a responsible adult and in good enough shape to run a race. Is that impossible? No. We are learning how to help companies do it. But in the absence of that, does there seem to be a natural life cycle? Yes.   

Is there a way to get great corporate culture right from the start or is that something that evolves?

You can get it right from the beginning. The problem people have is that they lose it over time. The entrepreneur who intuitively or by luck created the right kind of culture at the beginning is more tolerant of the original system as well as the hierarchy. Firms don’t start these hierarchies. They start these informal loose networks centred on a person or a couple of people who are the sun in this solar system. When they start growing they discover that they have to add a lot of things. That is where the Steve Jobs of the world hire in somebody from Pepsi who understands the managerial world; when he comes in, he kills off all the original stuff. The good cultures start good but get lost over time.

Are there any common mistakes that large global companies make, which leads to declining market leadership?

The fundamental problem is that they hang on to the past. You wouldn’t believe the amount of complacency out in the world. You don’t see it, because when you look at the firm, everyone is working like mad. It is a false sense of urgency, driven by anxiety and pressure from the top. It is all about activity and meetings, meetings, meetings but not productivity. The number of CEOs I know who look down on their organisations and say there is no problem is really phenomenal. Of course, what they are looking at is people running around in circles, like rats in a maze. It is not that those CEOs are stupid; it is just that they are not getting information fast and accurately. That is the nature of hierarchies — information flow is distorted on the way up and it is slow. They just don’t see it and so they don’t correct it.

Do you see a leadership vacuum going forward? If so, how can we fix it? 

Because of the way they are set up, organisations systematically produce managers; they don’t produce leaders. So the HR department is told ‘produce leaders’ and it starts a few courses. That means once a year I have two days on a course on leadership and 300 days doing a job that demands management. This doesn’t produce leadership and the way we are currently set up right, there is always going to be an increasing gap. 

To rectify this, we need a system that is network-based not hierarchy-based. This is something we have learnt in the last few years when we were helping companies get more agile. One of our clients ran some numbers on people who were are at the core of this new parallel system we put together. His crunching done, he asked, “Do you realise how many of them are getting promoted because people at the very top of their organisation are noticing that these guys are not only good managers with technical skills but they have got leadership stuff?” That left us convinced more than ever that a parallel network operating with the nimbleness of a start-up was the way ahead. 

Are there any business leaders to watch out for? Who are the new Jack Welchs?

Don’t focus on imitating Jack Welch or Lou Gerstner. Study them and try to figure what they did but don’t go in the direction of “let’s look for superhuman people and put them in charge” because you are not going to find enough. Every generation you will find 10, when you need 10,000 of them. At the cost of repeating myself, that is not the solution. What can help is to figure out what they have in common and then reproduce what a superhuman person did with large groups of people. That is what you want to be looking for, organisations that are moving in the right direction to create that. 

Is it fair to say nothing much has changed in terms of the leadership challenge?

After a level, it does not change. The guys who are running Google are going to run into some of the same fundamental problems that Welch or Gerstner ran into. But when you get down to the specifics, of course they change all the time. That is the basic thing: change. 

However, the reality is that the way you are going about things today is not fundamentally different from how you were doing it three months ago. That is what the brain absorbs and what it is absorbing is that things aren’t changing that much and so we proceed logically. But go out and get data on how many patents have been filed in the US over the last 20 years. All those curves are exponential. It is astonishing, but we don’t feel that as that is not our direct experience. We nod in agreement that things are changing but we really don’t get it. That is just the way human beings are, it’s not a putdown. But if we don’t start getting that right, it is eventually going to impair our growth.